Just ran in the South China Morning PostThursday, February 20, 2003Behind the mask, a new Japan is pushing for change

JOICHI ITO

Does growth in sophisticated economies require democracy? Do advanced economies thrive with more democracy? This age-old debate is more relevant than ever today. Doubters should look to Japan for reams of evidence that growth, especially when economic change is necessary, comes easier with democracy.

Post-war Japan consolidated power in the ruling party. Perhaps this was efficient at the time, as there was consensus on the appropriate direction of the country, but it created a super-powerful bureaucracy lording it over the country. People were educated to be obedient. Harmony was maintained by co-opting or disabling people or organizations that could threaten the system. Diversity in the media, a strong judiciary, diversity in education and politics were all stifled to maintain harmony.

While Japan was growing, it could afford to fund the ever-growing political machine. It could also afford not to change. However, today, Japan faces huge challenges both externally and internally. Ageing Japan now faces a competitive Asian manufacturing sector and a shift in resource allocation in the economy towards the service sector. However, the domestic services sector is inefficient and unable to compete globally because it has grown up protected by the bureaucracy and, thus, never had to compete. The markets are dysfunctional and unable to reallocate resources.

This harmony and consensus-bound process that once protected the happiness of Japan’s citizens is now the primary barrier to change. The system is self-perpetuating and extremely resistant to change. It hides behind the powerful and complex bureaucracy and the monolithic media that does not give voice to a diversity of opinions. In short, Japan is stuck with a system pointing in the wrong direction, without the ability to change course. The political system is unable to lead the nation. The lack of real democracy is the root problems.

Japan has a constitution and almost all of the laws required of a functioning democracy. In a democracy, there should be multiple points of authority, the ability to criticize power without fear of retribution, critical debate and a competition of ideas. Japan’s "market for ideas" is far from this. Japan must build a modern democracy and empower the people to participate. The situation is so bleak that some say a revolution is needed.

If it does happen, the revolution does not need to overthrow the government. It must, however, consolidate the will of the people to force the elite to allow authority to be distributed and democracy to function.

There are many signs of change in Japan – signs that a silent majority is pushing for a true democracy. Nagano Governor Yasuo Tanaka, an independent promising to shut down public works and crack down on graft, was voted into office by people upset by corruption and willing to suffer short term pain in order to fight it. He was ousted by the prefectural council in the first no-confidence vote in the history of modern Japanese politics, which did not involve a crime or a scandal. He ran again and won a landslide victory. He is now cleaning up the politics of Nagano prefecture.

Across Japan, people are voting more and more for independent, anti-corruption governors. When Minister for Economic and Fiscal Policy Heizo Takenaka presented his aggressive plan to restructure the non-performing loans problem last October, the mass media criticized him, bureaucrats were not supportive and the ruling party tried to stop him. And yet a poll run by Monex showed that 87 per cent of people supported him. This support was not reported in the mass media. The collusion between the bureaucracy and the media has been built up over decades, but the time has come for it to end. We should also remember that it under-represents the views of a large, silent majority.

In business – the traditional backbone of the bureaucracy – change is also afoot. Carlos Ghosn has been able to take Nissan, a failing Japanese company, and turn it around with 99 per cent of the original Japanese staff. Ripplewood, a foreign fund, has been able to buy the ailing Shinsei Bank (formerly the Long Term Credit Bank of Japan) and make it a success.

Many of the problems can be solved by ignoring the complex network of personal indebtedness (including lifetime employment) and exercising an ethic of transparency. The exciting thing about Nissan and Shinsei Bank is that the people working in these companies quickly embraced the new ethic and were able to use the foreign influence as a positive catalyst.

There are many isolated examples of average citizens pushing for change and embracing a new ethic of transparency and activism, but again, they are marginalized by the mass media.

As more of these individuals begin to express their opinions and organize themselves on the Internet, the number and size of these incidents should increase.

The Internet, and the "blogs" (Web log services) in particular, provide opportunities for the passive Japanese public to wake up before the catastrophe. The Internet is also a way to enable the youth of Japan, currently silenced by the older generation and destined to get stuck with supporting them, to speak up and organize themselves before it is too late. This is critical both for themselves and for Japan as a whole.

It is frightening to know that the collapse of brand-name corporations and the failure of the government to engage the people have largely caused many of the country’s youths to lose faith in the system.

Many have merely dropped out, but there is an increasing number of young Japanese organizing themselves with the help of tools such as mobile phones and the Internet.

For the first time since the student uprisings in the 1960s and 1970s, which made activism "unfashionable", young people are becoming more active. This is crucial, because if they do not, they will be rebuilding Japan from the ashes of a total economic collapse several years from now.

Historically, a catastrophe or a shock of some sort has been necessary for Japan to change. A sensible plan for rebuilding the democracy would be a good start, though. The Blueprint for Japan, which has been put together by a group of elected officials, businesspeople (ourselves included) and professors, identifies some key factors for a new system. These include: empowering prefectural governments and improving the fairness of voter representation; allowing more political appointees in the bureaucracy; breaking up the press clubs that tightly control access to key political figures; increasing the size and power of the judiciary; supporting more direct democracy and educational reforms; and increasing diversity through more immigration.

Of course, this is just a start and may not be without flaws. However, we also know that change has never happened without someone taking the first step. The Japanese people who make up the silent majority need to wake up and realize that change starts with them.

Joichi Ito is president and chief executive of venture capital firm Neoteny in Japan and a member of the Blueprint for Japan 2020, organized by the World Economic Forum.

DAVOS, Switzerland, Jan 24 (Reuters) – Japanese businessmen, academics and politicians cast aside their traditional reserve on Friday and called for an oriental version of the Boston Tea Party to end the bureaucratic elite’s grip on power in Tokyo.

The call, by a group of Japanese at the World Economic Forum, an annual high-profile gathering of the world’s powerful, reflected their frustration at a decade of economic stagnation.

The group has just published a paper called "Blueprint for Japan", aimed at laying bare some of the underlying causes of the country’s problems such as high debt and lack of competition.

The group said the radical changes needed would only be possible if the Japanese population, still affluent and content despite a decade of economic stagnation, really found out how their taxes were wasted and government corruption flourished.

"We need some kind of a revolution," said Jiro Tamura, a law professor at Keio University.

"For the Boston Tea Party to happen, which it will, people will have to understand the tax system and corruption," said Joichi Ito, chief executive of venture capitalist firm Neoteny, referring to the dispute over tea taxes which triggered the U.S. fight for independence from Britain.

To change the bureaucratic machine from the top is an almost impossible task and not a very appealing one, said Nobuyuki Idei the chief executive of Sony Corp 6758.T , the world’s largest electronics maker.

"No Japanese businessman running a company wants to be the candidate for the top political position in this country. It is an impossible system we have," Idei said.

"If Japan were a company, it would be bankrupt," he added.

Motohisa Furukawa, an Member of Parliament and policy maker for the opposition Democratic Party, said the government should be decentralized and power should be taken away from the bureaucratic elite who effectively manage the country.

"We lack transparency and accountability and this has contributed to the chain of discontent," he said."One of the core issues is that Japan is not a democracy. It has really a single body of power. It doesn’t have multiple points of authority, diversity and critical debate," Ito said.

Tamura said Japan was not a law-governed state but a bureaucrat-governed state. The absence of a strong legal system, with only 20,000 lawyers for the entire country of 125 million people, meant that public authorities ruled on disputes they were involved in, he said.

All speakers said the risk-averse Japanese educational system continued to power this development.

It was left to Carlos Ghosn, not a Japanese but a Frenchman, to point to what could be achieved.

Ghosn has breathed new life into car maker Nissan 7201.T after he took over the helm in 1999. Under his tenure, the company has cut debt, raised profit margins and market share and seen its share price multiply.

"Nissan is a perfect example that change is possible in Japan," he said."And it was done by 99 percent of the old employees."

Ghosn acknowledged he had had an advantage in that there already was a sense of urgency when he took over, as everyone agreed at the time that Nissan was in a dire state.MP Furukawa said this sense of urgency for economic or state reforms was not yet clear among the Japanese population.

"People are reluctant to change. It’s still just too comfortable for us," he said.